• Here's what David Kotok had to say about the Fitch announcement.

"One last thing." (part deux) -- Lt. Columbo

I like to always recap smart thinkers like Leon Cooperman, Byron Wien, James Grant, Peter Boockvar and so on. 

Here is another smartie -- David Kotok at Cumberland Advisors -- chiming in on the Fitch Ratings announcement.

"The United States has the absolute monetary and economic capacity to pay its debt.

"This action by Fitch is not about ability to pay. It is about governance and our willingness to pay.

"In that category the United States has reached the brink of political failure. Democrats and Republicans are now equally guilty of bringing this nation to this awful place. They are playing with fire when they injure the creditworthiness of the country.

"We are the world's dominant reserve currency. The entire planet holds our debt. We are the world's largest debtor. We have the biggest economy and the deepest financial market.

"Default is the unthinkable event and the risk is now perceived to be above zero. Fitch is doing the correct thing by placing the U.S. on credit watch for a downgrade."

• Here's what David Kotok had to say about the Fitch announcement.

"One last thing." (part deux) -- Lt. Columbo

I like to always recap smart thinkers like Leon Cooperman, Byron Wien, James Grant, Peter Boockvar and so on. 

Here is another smartie -- David Kotok at Cumberland Advisors -- chiming in on the Fitch Ratings announcement.

"The United States has the absolute monetary and economic capacity to pay its debt.

"This action by Fitch is not about ability to pay. It is about governance and our willingness to pay.

"In that category the United States has reached the brink of political failure. Democrats and Republicans are now equally guilty of bringing this nation to this awful place. They are playing with fire when they injure the creditworthiness of the country.

"We are the world's dominant reserve currency. The entire planet holds our debt. We are the world's largest debtor. We have the biggest economy and the deepest financial market.

"Default is the unthinkable event and the risk is now perceived to be above zero. Fitch is doing the correct thing by placing the U.S. on credit watch for a downgrade."

• The ratings agency, in putting the U.S. on Rating Watch Negative, warns of potentially heightened risk for default.

"One last thing." -- Lt Columbo

Peter Boockvar at The Lindsey Group recaps a statement from Fitch Ratings:

Here are snippets from the Fitch press release where they put the AAA debt of the United States on Rating Watch Negative which they expect to resolve by the end of Q1 2014 at the latest, "although timing would necessarily reflect developments and events, including the duration of any agreement to raise the debt ceiling."

"Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default."

"Although the Treasury would still have limited capacity to make payments after Oct 17th it would be exposed to volatile revenue and expenditure flows. The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so."

"The prolonged negotiations over raising the debt ceiling (following the episode in August 2011) risks undermining confidence in the role of the US dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the US. This "faith" is a key reason why the US AAA rating can tolerate a substantially higher level of public debt than other AAA sovereigns."

"The U.S. is the most heavily indebted AAA rated sovereign, with a gross debt ratio equivalent to double that of the AAA median."

• Thanks for reading my diary and enjoy the evening.

My research call will be going longer than I thought.

See you all back in the morning.

Thanks for reading my diary and enjoy the evening.

• I would continue to avoid the name.

I am seeing a seven figure buyer of J.C. Penney (JCP) now.

I would continue to avoid.

But just in case, it's a name!

• Not easy!

I gotta tell ya, trying to interview a management for an hour and a half while watching the volatile market react to news in Washington, D.C., is not easy!

• I plan to short the news of a final debt-ceiling and resolution agreement.

Repeating for emphasis: As mentioned, I plan to short the news of a final debt-ceiling and resolution agreement, which I expect to be achieved at the last minute, later this week.

• I suspect I will have a chance to reshort higher in the days ahead.

I am covering half of my trading shorts, as I suspect I will have a chance to reshort higher in the days ahead.

• Break in: Senator Murphy is saying that Senate ceiling discussions are suspended.

• I'm going back to a management call on a stock of interest.

I am heading back into a management call on the same potential "home run" stock I have been workng on for a while.

Painful how long this analysis is taking.

I should be back before the close.

• Watch the White House presser.

Here is a link to the White House press conference website.

• Here are his musings at middday.

Midday musings from Sir Arthur Cashin:

Washington Follies are wearing thin on markets.  Last night's assumed Senate deal now has a possible competitor.  Floor sense continues that a last minute can kick will get done.

Volume grows on Monday's semi-holiday.  Run rate at 12:30 projects to 620/700 million.

• iPad invites sent.

Apple (AAPL) mails iPad invites.

• Altisource Residential's shares are exemplary.

 An observation: Altisource Residential's (RESI) shares are consolidating in a perfect way.

• So you know.

If you are trading the homewreckers, I would mention that my contacts in the housing industry point toward weakening traffic/orders in September-October.

• So far.

I added to my longs in Citigroup (C) and Potash (POT), and I added to my index shorts -- SPDR S&P 500 ETF Trust (SPY), iShares Russell 2000 Index Fund (IWM) and PowerShares QQQ (QQQ).

• Rumor has it.

High above the Alps, my gnome is hearing that J.C. Penney (JCP) is having renewed problems with suppliers.

• Here is her technical take.

BTIG's Katie Stockton on the market: 

The S&P futures are showing signs of exhaustion on an intraday basis, based on the DeMark indicators, supporting a pullback today and potentially tomorrow. However, we believe the relief rally will resume, generating a test of final resistance, and would keep a bullish bias. The rally has already generated widespread breakouts in European equities, which bodes well for continuation of the uptrend.

• Republican lawmakers detail Boehner comments to closed meeting.

Break in: Boehner said to call Senate proposal a hand grenade.

Republican lawmakers detail Boehner comments to closed meeting.

• It's QQQ.

I now have an outsized (for me) short position in the Nasdaq.

The Nasdaq possesses most of the speculatiion that I feel will be unwound in the fullness of time.

• I am buying more shares at $31.64.

i am adding small to my Potash (POT) long at $31.64 now.

• Run, don't walk, to read Tom DeMark's comments in Bloomberg Businessweek.

Technical guru Tom DeMark sees dark days ahead.

• At $79.82.

I am pressing my PowerShares QQQ (QQQ) short at $79.82 now.

• Break in: Paul Ryan -- budget provision not enough in Senate plan; futures fall 4 handles.

• We are in wrong stage of the rate cycle to own it.

On Chimera (CIM), I would respectfully disgaree with Lee, and I would sell if I were long.

Crappy business and the wrong stage of the rate cycle to own it, imho.

• At $79.81.

I just put out more PowerShares QQQ (QQQ) on the short side at $79.81.

• Run, don't walk, to watch Lee Cooperman on CNBC.

As I mentioned previously, my friend/buddy/pal Lee Cooperman (the dean of value investing) was the guest host on CNBC's "Squawk Box" this morning.

Here is "The World According to Lee."

• The Lindsey Group's Peter Boockvar weighs the good and the bad.

Peter outlines the positives/negatives this morning. 

For the Bulls,

1)Assuming deal (House still needs to pass whatever Senate sends over), DC just bought itself another 3-4 months.

2)Celebrate the Yellen put which will likely be no different than the Bernanke and Greenspan one.

3)2014 consensus eps is expected to rise 10.6% y/o/y putting the market multiple at a reasonable 14x 2014 estimate.

4)Interest rates have headed higher because the economy is getting better with ISM manufacturing at more than a two yr high, vehicle sales doing well, jobless claims are low, European economies stabilizing and with China hanging in.

5)If bonds keep selling off, we'll see rotation into stocks.

6)Companies have record cash levels to buy back stock and increase dividends.

7)With interest rates still historically low, there is no other place but stocks.

8)This rally gets little respect.

For the Bears,

1)My Vegas odds are 2:1 that the conversation on Shutdown and debt ceiling over the past 3 months will be fully repeated in the next 3-4 months. The explosion in the national debt is now getting very scary.

2)We've already priced in QE so many times this year as evidenced by the P/E expansion notwithstanding the diminishing returns of QE. Stock price increases in 2013 are so far above the dollar size of Fed purchases and the growth in the actual economy and earnings.

3)With nominal GDP at 3% and profit margins now peaking, there is no chance we'll see 10.6% eps growth in 2014 and with margins 70% above its historical mean, stocks are very overvalued at current levels on normalized eps.

4)Interest rates have headed higher because the Fed is losing control of the long end of the curve. Even with full speed QE for a while longer, the 10 yr yield is still 100 bps off the May low. All the Fed is doing now is just monetizing our budget deficits and then some.

5)The US economy is not getting better. It's still stuck in the 1.5-2% range. ISM services down sharply in September, housing gains moderating, retail sales sluggish and now government spending a drag.

6)Higher interest rates are kryptonite to markets and an economy that are addicted to low rates. Rotation concept is nonsensical as for every seller of a bond there has to be a buyer of it and there is someone selling that share of stock that is bought. It's the aggressiveness of the buying and selling that matters.

7)Corporate debt is at record highs and companies are still reluctant to spend on property, plant, equipment and labor.

8)Cash is an asset class if fundamentals are challenging and stocks are richly priced.

9)Outside of perma bears, there are no bears. Everyone wants to buy the dip as measured by the weekly Investors Intelligence data.

• I shorted the indices -- namely S&P 500 and Russell 2000.

In premarket trading, I shorted more SPDR S&P 500 ETF Trust (SPY) at $171.11 and iShares Russell 2000 Index Fund (IWM) $108.27.

I am added my SPY short to my Best Ideas list (which I use as a way of emphasizing my level of conviction).

I am reviewing the Citigroup (C) report, which looked more or less in line ($0.02 short of consensus).

• Let's take a look at the overnight and early-morning price action in the major asset classes.

The rundown:

• S&P futures are up 2;
• Nasdaq futures are up 7;
• Nikkei is up 0.25%;
• China Shanghai is down 0.20% (a lot of economic data coming out Thursday night);
• European markets are up -- the ZEW Institute's index of German investor confidence was strong in October);
• euro is down;
• crude is down $0.50;
• gold is down $19; and
• the 10-year U.S. note yields 2.72% (up 3 basis points day over day).

Worth mentioning:

• A three-day win skein of nearly 55 S&P points continued yesterday, and I was inactive.
• I haven't done anything thus far in premarket trading.
• As discussed in yesterday' s opening missive, I am a seller on the inevitable news of progress in Washington, D.C. Soon, we will return our focus to fundamentals and the diappointing economic and profit growth that  lie ahead.  Earnings guidance is back at early-2009 levels -- and going lower.
• I am agnostic on bonds, expecting the 10-year U.S. note yield to range (narrowly) between 2.50% and 2.85% over the balance of the year.
• The frameworkof an agreement is now in place in Washington, D.C. As written yesterday, we are simply kicking the can down the road.
• The ZEW Institute's index of German investor confidence was strong in October, another metric indicating that the eurozone has exited recession. The economic expectations of this index lifted 3.2 points, to 52.8 in October, its best reading in three years;  the assessment of current situation index dropped to 29.7 from 30.6 in September after increasing sharply since April.

In the news:

• The New York Times -- "Changing the Debt-Ceiling Game."
• Financial Times -- U.S. might benefit from debt-ceiling deliberations.
• The Washington Post -- Democrats exposed. 
• The Wall Street Journal -- "Daniel Yergin: Why OPEC No Longer Calls the Shots." 

Some possible economic and earnings catalysts that could impact markets:

• Omega's Lee Cooperman and Appaloolsa's David Tepper will be on CNBC Tuesday morning.
• U.S. Empire Manufacturing for October (8:30 a.m. EDT; this will still happen despite shutdown).
• Fed speakers (Dudley, 10:00 a.m. EDT; Williams, 11:10 a.m. EDT; Fisher, 7:15 p.m. EDT).
• Eurozone finance minister meeting (Oct. 14-Oct 15).
• Japan parliament comes back into session.
• ZEW expectations for October (5:00 a.m. EDT).
• Detailed Iranian negotiations resume in Geneva (Oct. 15).
• Earnings before the open -- Burberry, C, DPZ, FRC, JNJ, KO, LVMH, OMC, Rio Tinto, SCHW
• Earnings after the close -- CSX, INTC, LLTC, YHOO
• Analyst meetings -- GWRE, Munich Re, WMT, WWW

• Well, I don't!

The outline of a deal between Republicans and Democrats in the Senate has taken form.

It appears that a continuing resolution to end the shutdown and fund discretionary government spending at the existing level of $987 billion through Jan. 15, 2014, allowing time for Reid and McConnell to negotiate further sequester cuts, and to extend the debt ceiling to Feb. 7 is on the table. (Note: The timetables are somewhat shorter than the previous Senate Democrat proposals.)

The Democrats will likely agree to tighten income verification for Obamacare subsidies in return for a delay of the reinsurance tax (an unpopular provision for the labor unions).

While it could be brought back as an issue during future fiscal negotiations, the repeal of the medical device tax seems unlikely.

Finally, under the proposed plan, a budget plan agreement would be concluded by Dec. 13, 2013.

The latest negotiations appear to supersede a previous proposal from Senate Democrats earlier today that envisaged a longer six- to nine-month debt ceiling extension.

It is anticipated that Reid will put the proposal up for a vote today or tomorrow, although it is technically possible that the Republicans may be able to delay the vote past the formal Oct. 17 deadline toward the end of the week.

Then, the Senate passed bill must clear the House (which is Republican-controlled), which potentially may seek to amend the Senate bill. It also remains possible that the hardliners (Tea Party) may reject a compromise bill and temporarily provide a setback to the bill being agreed to.

That said, the weak showing in the polls suggests any holdout against a bipartisan Senate agreement would be very short-lived. Speaker Boehner is likely to allow a bill to pass the House on a bipartisan basis rather than risk more damage to himself and to the Republican Party, as the November 2014 elections are around the corner.

With growing market conviction that an end is near to the two-week impasse, the S&P 500 has risen by about 55 points since last Wednesday.

For the reasons mentioned in yesterday's opening missive, it is my view that the market has more than discounted the news.

The can (of resolving the U.S. debt problem) is simply being kicked down the road.

This, to me, is not (market) valuation expanding.

The market says (as baseball fans did of the 1973 New York Mets baseball team), "you gotta believe."

Well, I don't!